UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1998
THE MORGAN GROUP, INC.
2746 Old U.S. 20 West
Elkhart, Indiana 46514
(219) 295-2200
Commission File Number 1-13586
Delaware 22-2902315
(State of Incorporation) (I.R.S. Employer Identification Number)
Securities Registered Pursuant to Section 12(b) of the Act:
American Stock Exchange
Class A common stock, without par value
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of March 26, 1999 was $7,392,000. The number of shares of the Registrant's
Class A common stock $.015 par value and Class B common stock $.015 par value,
outstanding as of March 26, 1999, was 1,249,207 shares, and 1,200,000 shares,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders are
incorporated into Part III of this report.
<PAGE>
Part I
Item 1. BUSINESS
Overview
The Company is the nation's largest publicly owned service company in managing
the delivery of manufactured homes, commercial vehicles and specialized
equipment in the United States, and through its wholly owned subsidiary, Morgan
Drive Away, Inc. ("Morgan") has been operating since 1936. The Company provides
outsourcing transportation services through a national network of approximately
1,530 Independent Owner-Operators and approximately 1,420 other drivers. The
Company dispatches its drivers from 105 locations in 32 states. The Company's
largest customers include Oakwood Homes Corporation, Fleetwood Enterprises,
Inc., Champion Enterprises, Inc., Winnebago Industries, Inc., Clayton Homes,
Inc., Cavalier Homes, Inc., Palm Harbor Homes, Inc., Four Seasons Housing, Inc.,
Ryder System, Inc., and Fairmont Homes, Inc. The Company's services also include
providing certain insurance and financing services to the independent
owner-operators.
As further described below, the Company's strategy is to grow through expansion
in the niche businesses already being serviced with heavy emphasis on
outsourcing, along with pursuing acquisitions of niche transportation carriers
who are servicing their customer base with unique service and/or equipment. In
addition, the Company will look to expand insurance product offerings to drivers
through its subsidiary, Interstate Indemnity Company ("Interstate"), and to
broaden its financing activities through Morgan Finance, Inc. ("Finance").
Morgan, the Company's principal subsidiary, was founded in 1936 in Elkhart,
Indiana and incorporated in 1942. The Morgan Group, Inc. is a Delaware
corporation formed by Lynch Corporation in 1988 to acquire Morgan and
Interstate. In 1994, the Company formed Finance for the purpose of offering
financing to independent owner-operators. In 1995, the Company acquired the
assets of Transfer Drivers, Inc. ("TDI"), a northern Indiana-based outsourcing
company. TDI participates in the fragmented truck delivery business focusing on
relocation of consumer and commercial vehicles for customers, including Budget
One-Way Rental, Ryder System, Inc., and Ford Motor Company.
In December 1996, the Company acquired the assets of Transit Homes of America,
Inc. ("Transit"), a national outsourcing company located in Boise, Idaho.
Transit is a provider of services primarily to the manufactured housing and
specialized transport industries.
The Company decided in the fourth quarter of 1996 to discontinue the "Truckaway"
operation of the Specialized Outsourcing Services segment. Truckaway was a line
of business that transported van conversions, tent campers, and other automotive
products on company-owned equipment.
The Company's principal office is located at 2746 Old U.S. 20 West, Elkhart,
Indiana 46514-1168.
<PAGE>
Industry Information
Manufactured Housing
The largest portion of the Company's operating revenues are derived from
transportation of manufactured housing, primarily new manufactured homes. Unit
shipments by the manufactured housing industry (considering double-wide homes as
two shipments) in the U.S. increased by approximately 8% to 602,000 in 1998 from
558,000 in 1997, after 6% and 9% increases in 1997 and 1996, respectively,
according to data from the Manufactured Housing Institute ("MHI"). A
manufactured home is an affordable housing alternative. The Company believes the
manufactured housing industry production should continue to grow along with the
general economy, especially while employment statistics and consumer confidence
remain strong. The Company believes that the principal economic consideration of
the typical manufactured home buyer is the monthly payment required to purchase
a manufactured home and that purchasers are generally less affected by
incremental increases in interest rates than those purchasers of site built
homes. There is no assurance, however, that manufactured housing production will
continue to increase.
Company Services
The Company operates in these business segments: Manufactured Housing,
Specialized Outsourcing Services, and Insurance and Finance.
o Manufactured Housing Segment. Manufactured Housing, which includes
Transit, provides specialized transportation to companies which
produce new manufactured homes, modular homes, and office trailers. In
addition, Manufactured Housing transports used manufactured homes and
offices for individuals, businesses, and the U.S. Government. Based on
industry shipment data available from the MHI, and the Company's
knowledge of the industry and its principal competitors, the Company
is the largest transporter of manufactured homes in the United States.
Manufactured Housing ships products through approximately 1,160
independent owner-operators who drive specially modified
semi-tractors, referred to as "toters," used in manufactured housing
transportation to reduce combined vehicle length. Makers of
manufactured housing generally ship their products no more than a few
hundred miles from their production facilities. Therefore, to serve
the regional structure of this industry, the Company positions its
dispatch offices close to the production facilities it is serving.
Approximately 30 of the Company's dispatch offices are located in such
a manner to serve the needs of a single manufactured housing producer.
Most manufactured housing units, when transported by a toter require a
special permit prescribing the time and manner of transport for
over-dimensional loads. See "Business-Regulation." The Company obtains
the permits required for each shipment from each state through which
the shipment will pass. In 1998, Manufactured Housing delivered
approximately 179,000 units.
o Specialized Outsourcing Services Segment. The Specialized Outsourcing
Services provides outsourcing transportation services primarily to
manufacturers of recreational vehicles, commercial trucks, and other
specialized vehicles and trailers through a network of service centers
in nine states. Driver outsourcing (including TDI), engages the
services of approximately 1,420 drivers which are outsourced to
customers to deliver recreational, commercial, and other specialized
vehicles. In 1998, Driver outsourcing delivered approximately 45,000
units through the use of these drivers. In 1998, the large trailer
("Towaway") operation moved approximately 15,000 trailers. Towaway
contracts with approximately 209 independent owner-operators who drive
semi-tractors. Additionally, travel and other small trailers are
delivered by independent owner-operators utilizing pickup trucks. The
Company in 1997, initiated a new vehicle transportation and delivery
service, called "decking". Decking is the delivery of two to four
over-the-road highway tractors by means of mounting one or more
tractors on the rear of a preceding tractor.
o Insurance and Finance Segment. The Insurance and Finance segment
provides insurance and financing to the Company's drivers and
<PAGE>
independent owner-operators. Interstate, the Company's insurance
subsidiary, may accept a limited portion or all of the underwriting
risk, retaining the appropriate proportion of the premiums. This
segment administers the cargo, bodily injury and property damage
insurance programs.
Selected Operating and Industry Participation Information
The following tables set forth operating information and industry participation
in the manufactured housing industry with respect to the aforementioned Company
trucking operations for each of the five years ended December 31, 1998.
<TABLE>
<CAPTION>
Years Ended December 31,
Manufactured Housing
Operating Information: 1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
New home shipments 98,181 114,890 121,136 154,389 161,543
Other shipments 23,423 20,860 23,465 24,144 17,330
-------- -------- -------- -------- --------
Total shipments 121,604 135,750 144,601 178,533 178,873
Linehaul revenues (in thousands) (1) $ 53,520 $ 63,353 $ 72,616 $ 93,092 $ 94,158
Manufactured Housing
Industry Participation:
Industry production (2) 451,646 505,819 553,133 558,435 601,678
New home shipments 98,181 114,890 121,136 154,389 161,543
Shares of units shipped 21.7% 22.7% 21.9% 27.6% 26.8%
Specialized Outsourcing Services
Operating Information:
Shipments 73,994 94,291 99,623 80,314 82,344
Linehaul revenues (in thousands) (1) $ 43,443 $ 49,336 $ 49,259 $ 39,336 $ 42,994
</TABLE>
(1) Linehaul revenue is derived by multiplying the miles of a given shipment by
the stated mileage rate.
- -
(2) Based on reports of Manufactured Housing Institute ("MHI"). To calculate
shares of new homes shipped, the Company assumes two unit shipments for
each multi-section home.
Additional financial information about the business segments is included in
Management's Discussion and Analysis of Financial Conditions and Results of
Operations and in Note 13 of the Notes to the Consolidated Financial Statements
included in Item 8.
<PAGE>
Growth Strategy
The Company's strategy is to focus on the profitable core transportation
services (Manufactured Housing and Specialized Outsourcing Services) so that
operating revenues and profitability can grow in its area of dominant market
position. The Company will also look for opportunities to capitalize and/or grow
its market in manufactured housing and outsourcing through acquisitions if
suitable opportunities arise. To enhance its profitability, the Company is
continuing the process of reconstructing its organization to reduce centralized
overhead and redundant field expense.
o Manufactured Housing. The Company believes it can take better
advantage of its position in the manufactured housing industry and its
relationship with manufacturers, retailers, and independent
owner-operators, by expanding the service it offers within its
specialized business. The Company proposes to pursue opportunities to
offer new services, which may include financial, insurance, and to a
lesser degree, manufactured housing set up services. The Company will
also consider acquisition opportunities. The Company may also pursue
the purchase of certain manufacturers' private transport fleets. In
such a case, the Company would typically purchase the customer's
tractors, sell the equipment to interested drivers, and then engage
these drivers as independent owner-operators.
o Specialized Outsourcing Services. The Company believes it can
capitalize on the growing trend in the outsourcing of specialized
vehicle transportation and delivery by manufacturers. It is estimated
that approximately 750,000 vehicles are delivered each year through
driveaway services, a delivery market estimated at $500 million or
more. The number of vehicles to be outsourced is expected to increase
substantially as companies calculate the cost benefits of not
maintaining their own driver corps, paying salaries and benefits,
running dispatch points, and maintaining an equipment base. Unlike
companies with drivers on their payroll, Morgan's drivers are paid
only when deliveries are made. Morgan's growth strategy within this
market is to expand its market position in this highly fragmented
delivery transportation market. The future growth rate of the
Company's outsourcing business is dependent upon continuing to add
major vehicle customers and expanding the Company's driver force.
o Insurance and Finance. The Company has enhanced driver screening and
training procedures to promote safe driver practices and enhance
compliance with Department of Transportation regulations. The
Company's driver recognition programs emphasize safety to enhance the
Company's overall safety record. In addition to periodic recognition
for safe operations and regulatory compliance, the Company has
implemented safe driving bonus programs. These programs are to reduce
the Company's claims and insurance expense which historically, has
approximated 7.5% of operating revenues. The Company is currently
offering financing opportunities to selected existing and new
independent owner-operators, through Finance, a financial subsidiary
created in 1994 to support these activities. In 1995, Morgan formed an
alliance with a financial institution which is providing financing to
Morgan independent owner-operators for tractor purchases. These
equipment financing programs are expected to solidify the Company's
relationships with independent owner-operators, increase its fleet,
and further expand the Company's transportation capacity. The Company
also offers insurance services to independent owner-operators.
o Acquisitions. The Company is considering acquisition opportunities
within Manufactured Housing. Thus, the Company may consider acquiring
regional or national firms which service the manufactured housing
and/or the outsourcing industry. The Company is continuously reviewing
potential acquisitions and is engaged in negotiations from time to
time. There can be no assurance that any future acquisitions will be
effected, or, if effected, can be successfully integrated with the
Company's business.
o Expansion of Related Services. The Company believes it can take better
advantage of its position in Manufactured Housing and Specialized
Outsourcing Services, and its relationships with manufacturers,
retailers, and independent owner- operators, by expanding the services
it offers within its specialized business.
The Company will carefully consider the feasibility of these and similar
opportunities over the next year. If the Company is successful in offering new
<PAGE>
services such as these, it expects to enhance and diversify its operating
revenues and may reduce its vulnerability to broad production cycles in the
industries it serves. The Company cannot give any assurance that new services,
if any, will be profitable and such new services may result in operating losses.
Forward-Looking Discussion
In 1999, the Company could benefit from better pricing, reduction of overhead
through corporate restructuring, elimination of redundant field expense, and
improvement of its safety record. Business expansion, including possible
acquisitions, could augment operating revenue gains. While the Company remains
optimistic over the long term, near term results could be affected by a number
of internal and external economic conditions.
This report contains a number of forward-looking statements, including those
contained in the preceding paragraph and the discussion of growth strategy
above. From time to time, the Company may make other oral or written
forward-looking statements regarding its anticipated sales, costs, expenses,
earnings and matters affecting its condition and operations. Such
forward-looking statements are subject to a number of material factors which
could cause the statements or projections contained herein or therein to be
materially inaccurate. Such factors include, without limitation, the following:
o Dependence on Manufactured Housing. Shipments of manufactured housing
have historically accounted for a substantial majority of the
Company's operating revenues. Therefore, the Company's prospects are
substantially dependent upon this industry which is subject to broad
production cycles. Shipments by the manufactured housing industry
could decline in the future relative to historical levels which could
have an adverse impact on the Company's operating revenues.
o Costs of Accident Claims and Insurance. Traffic accidents occur in the
ordinary course of the Company's business. Claims arising from such
accidents can be significant. Although the Company maintains liability
and cargo insurance, the number and severity of the accidents
involving the Company's independent owner-operators and drivers can
have significant adverse effect on the profitability of the Company
through premium increases and amounts of loss retained by the Company
below deductible limits or above its total coverage. There can be no
assurance that the Company can continue to maintain its present
insurance coverage on acceptable terms nor that the cost of such
coverage will not increase significantly.
o Customer Contracts and Concentration. Historically, a majority of the
Company's operating revenues have been derived under contracts with
customers. Such contracts generally have one, two, or three year
terms. There is no assurance that customers will agree to renew their
contracts on acceptable terms or on terms as favorable as those
currently in force. The Company's top ten customers have historically
accounted for a majority of the Company's operating revenues. The loss
of one or more of these significant customers could adversely affect
the Company's results of operations.
o Competition for Qualified Drivers. Recruitment and retention of
qualified drivers and independent owner-operators is highly
competitive. The Company's contracts with independent owner-operators
are terminable by either party on ten days' notice. There is no
assurance that the Company's drivers will continue to maintain their
contracts in force or that the Company will be able to recruit a
sufficient number of new drivers on terms similar to those presently
in force. The Company may not be able to engage a sufficient number of
new drivers to meet customer shipment demands from time to time,
resulting in loss of operating revenues that might otherwise be
available to the Company.
<PAGE>
o Independent Contractors, Labor Matters. From time to time, tax
authorities have sought to assert that independent contractors in the
transportation service industry are employees, rather than independent
contractors. Under existing interpretations of federal and state tax
laws, the Company maintains that its independent contractors are not
employees. There can be no assurance that tax authorities will not
challenge this position, or that such tax laws or interpretations
thereof will not change. If the independent contractors were
determined to be employees, such determination could materially
increase the Company's tax and workers' compensation exposure.
o Risks of Acquisitions. The Company has sought and will continue to
seek favorable acquisition opportunities. Its strategic plans may also
include the initiation of new services or products, either directly or
through acquisition, within its existing business lines or which
complement its business. There is no assurance that the Company will
be able to identify favorable acquisition opportunities in the future.
There is no assurance that the Company's future acquisitions will be
successfully integrated into its operations or that they will prove to
be profitable for the Company. Such changes could have a material
adverse effect on the Company.
o Seasonality and General Economic Conditions. The Company's operations
have historically been seasonal, with generally higher operating
revenues generated in the second and third quarters than in the first
and fourth quarters. A smaller percentage of the Company's operating
revenues are generated in the winter months in areas where weather
conditions limit highway use. The seasonality of the Company's
business may cause a significant variation in its quarterly operating
results. Additionally, the Company's operations are affected by
fluctuations in interest rates and the availability of credit to
purchasers of manufactured homes and motor homes, general economic
conditions, and the availability and price of motor fuels.
Customers and Marketing
The Company's customers requiring delivery of manufactured homes, recreational
vehicles, commercial trucks, and specialized vehicles are located in various
parts of the United States. The Company's largest manufactured housing customers
include Oakwood Homes Corporation, Fleetwood Enterprises, Inc., Champion
Enterprises, Inc., Clayton Homes, Inc., Cavalier Homes, Inc., Palm Harbor, Four
Seasons Housing, Inc., and Skyline Corporation. The Company's largest
Specialized Outsourcing Services customers include Winnebago Industries, Inc.,
Fleetwood Enterprises, Inc., Ryder System, Inc., Gulfstream Coach, Inc., Xtra
Lease, Inc., and North American Van Lines, Inc. While most manufacturers rely
solely on carriers such as the Company, other manufacturers operate their own
equipment and may employ outside carriers on a limited basis.
The Company's operating revenues are comprised primarily of linehaul revenues
derived by multiplying the miles of a given shipment by the stated mileage rate.
Operating revenues also include charges for permits, insurance, escorts and
other items. A substantial portion of the Company's operating revenues is
generated under one, two, or three year contracts with producers of manufactured
homes, recreational vehicles, and the other products. In these contracts, the
manufacturers agree that a specific percentage (up to 100%) of their
transportation service requirements from a particular location will be performed
by the Company on the basis of a prescribed rate schedule, subject to certain
adjustments to accommodate increases in the Company's transportation costs.
Linehaul revenues generated under customer contracts in 1996, 1997, and 1998
were 62%, 68%, and 64% of total linehaul revenues, respectively.
The Company's ten largest customers all have been served for at least three
years and accounted for approximately 59%, 66%, and 69% of its linehaul revenues
in 1996, 1997, and 1998, respectively. Linehaul revenues under contract with
Fleetwood Enterprises, Inc. ("Fleetwood"), accounted for approximately $26.6
million, $28.1 million, and $26.0 million of linehaul revenues in 1996, 1997,
and 1998, respectively. Linehaul revenues with Oakwood Homes Corporation
("Oakwood") accounted for approximately $12.9 million, $21.6 million and $31.8
million of linehaul revenues in 1996, 1997, and 1998, respectively. The
Fleetwood manufactured housing contract is continuous until canceled. The
Oakwood manufactured housing contract is renewed annually. The Company has been
servicing Oakwood for ten years and Fleetwood for over 25 years.
<PAGE>
The Company markets and sells its services through 105 locations in 32 states,
concentrated where manufactured housing and motor home production facilities are
located. Marketing support personnel are located both at the Company's Elkhart,
Indiana headquarters and regionally. Dispatch offices are supervised by regional
offices.
The Company has 35 dispatch offices each devoted primarily to a single customer
facility. This allows the dispatching agent and local personnel to focus on the
needs of each individual customer while remaining supported by the Company's
nationwide operating structure. Sales personnel at regional offices and at the
corporate headquarters meet periodically with manufacturers to review production
schedules, requirements and maintain contact with customers' shipping personnel.
Senior management maintains personal contact with corporate officers of the
Company's largest customers. Regional and terminal personnel also develop
relationships with manufactured home park owners, retailers, military
installation officials and others to promote the Company's shipments of used
manufactured homes. The Company also participates in industry trade shows
throughout the country and advertises in trade magazines, newspapers, and
telephone directories.
Independent Owner-Operators
The shipment of product by Manufactured Housing and a portion of Specialized
Outsourcing Services is conducted by contracting for the use of the equipment of
independent owner-operators.
Owner-operators are independent contractors who own toters, tractors or pick-up
trucks which they contract to, and operate for, the Company on a long-term
basis. Independent owner-operators are not generally approved to transport
commodities on their own in interstate or intrastate commerce. The Company,
however, possesses such approvals and/or authorities (see
"Business-Regulation"), and provides marketing, insurance, communication,
administrative, and other support required for such transportation.
The Company attracts independent owner-operators mainly through field
recruiters, trade magazines, referrals, and truck stop brochures. The Company
has in the past been able to attract new independent owner-operators primarily
because of its competitive compensation structure, its ability to provide loads
and its reputation in the industry. Recruitment and retention of qualified
drivers is highly competitive and there can be no assurance that the Company
will be able to attract a sufficient number of qualified independent
owner-operators in the future.
The contract between the Company and each owner operator can be canceled upon
ten day's notice by either party. The average length of service of the Company's
current independent owner-operators is approximately 2.5 years, for the past two
years. At December 31, 1998, 1,530 independent owner-operators were under
contract to the Company, including 1,160 operating toters, 209 operating
semi-tractors, and 161 operating pick-up trucks.
In Manufactured Housing, independent owner-operators utilizing toter equipment
tend to exclusively transport manufactured housing, modular structures, or
office trailers. Once modified from a semi-tractor, a toter has limited
applications for hauling general freight. Toter drivers are, therefore, unlikely
to be engaged by transport firms that do not specialize in manufactured housing.
This gives the Company an advantage in retaining toter independent
owner-operators. The average tenure with the Company of its toter independent
owner-operators is 3.3 years, compared to 2.8 years in 1997.
In Specialized Outsourcing Services, Morgan is competing with national carriers
for the recruitment and retention of independent owner-operators who own
tractors. The average length of service of the Company's independent
owner-operators is approximately 2.1 years, compared to 2.8 years in 1997.
Independent owner-operators are generally compensated for each trip on a per
mile basis. Independent owner-operators are responsible for operating expenses,
including fuel, maintenance, lodging, meals, and certain insurance coverages.
The Company provides required permits, cargo and liability insurance (coverage
while transporting goods for the Company), and communications, sales and
administrative services. Independent owner-operators, except for owners of
certain pick-up trucks, are required to possess a commercial drivers license and
to meet and maintain compliance with requirements of the U.S. Department of
Transportation and standards established by the Company.
From time to time, tax authorities have sought to assert that independent
owner-operators in the trucking industry are employees, rather than independent
contractors. No such tax claims have been successfully made with respect to
independent owner-operators of the Company. Under existing industry practice and
interpretations of federal and state tax laws, as well as the Company's current
<PAGE>
method of operation, the Company believes that its independent owner-operators
are not employees. Whether an owner operator is an independent contractor or
employee is, however, generally a fact-sensitive determination and the laws and
their interpretations can vary from state to state. There can be no assurance
that tax authorities will not successfully challenge this position, or that such
tax laws or interpretations thereof will not change. If the independent
owner-operators were determined to be employees, such determination could
materially increase the Company's employment tax and workers' compensation
exposure.
Outsourcing
The Company utilizes both independent contractors and employees in its
outsourcing operations. The Company outsources its over 1,420 drivers on a
trip-by-trip basis for delivery to retailers and rental truck agencies,
recreational and commercial vehicles, such as buses, tractors, and commercial
vans. These individuals are recruited through driver recruiters, trade
magazines, brochures, and referrals. Prospective drivers are required to possess
at least a chauffeur's license and are encouraged to obtain a commercial
driver's license. They must also meet and maintain compliance with requirements
of the U.S. Department of Transportation and standards established by the
Company. Outsourcing drivers are utilized as needed, depending on the Company's
transportation volume and driver availability. Outsourcing drivers are paid on a
per mile basis. The driver is responsible for most operating expenses, including
fuel, return travel, lodging, and meals. The Company provides licenses, cargo
and liability insurance, communications, sales, and administrative services.
Agents and Employees
The Company has approximately 108 terminal managers and assistant terminal
managers who are involved directly with the management of equipment and drivers.
Of these 108 staff, approximately 95 are full-time employees and the remainder
are independent contractors who earn commissions. The terminal personnel are
responsible for the Company's terminal operations including safety, customer
relations, equipment assignment, invoicing, and other matters. Because terminal
personnel develop close relationships with the Company's customers and drivers,
from time to time the Company has suffered a terminal personnel defection,
following which the former staff has sought to exploit such relationships in
competition with the Company. The Company does not expect that future
defections, if any, would have a material affect on its operations. In addition
to the 108 terminal personnel, the Company employs approximately 261 full-time
employees. The Company also has 14 employee drivers in Manufactured housing and
six in Outsourcing.
Seasonality
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This usually reduces operating
revenues in the first and fourth quarters of the year. The Company's operating
revenues, therefore, tend to be stronger in the second and third quarters.
Risk Management, Safety and Insurance
The risk of substantial losses arising from traffic accidents is inherent in any
transportation business. The Company carries insurance to cover such losses up
to $25 million per occurrence with a deductible of $150,000 per occurrence
beginning on April 1, 1998, and a deductible of $250,000 for prior periods, for
personal injury and property damage. The Company carries cargo insurance of $1
million per occurrence with a $150,000 deductible, also. The Company's cargo
damage insurance policy for the year ending March 31, 1999 includes a stop-loss
provision, which benefited the Company by $767,000 in 1998. The frequency and
severity of claims under the Company's liability insurance affects the cost and
potentially the availability of such insurance. If the Company is required to
pay substantially greater insurance premiums, or incurs substantial losses above
$25 million or below its $150,000 deductibles, its results could be materially
adversely affected. The Company has been approved but has not activated a
self-insurance authority of up to $1 million. There can be no assurance that the
Company can continue to maintain its present insurance coverage on acceptable
terms.
The following table sets forth information with respect to bodily injury,
property damage, cargo claims, and automotive physical damage reserves for the
years ended December 31, 1996, 1997, and 1998, respectively.
<PAGE>
Claims Reserve History
Years Ended December 31,
(in thousands)
1996 1997 1998
------- ------- -------
Beginning Reserve Balance $ 3,683 $ 4,660 $ 5,323
Provision for Claims 6,598 7,204 7,698
Payments, net (5,621) (6,541) (4,913)
------- ------- -------
Ending Reserve Balance $ 4,660 $ 5,323 $ 8,108
======= ======= =======
The Company has driver recognition programs emphasizing safety to enhance the
Company's overall safety record. In addition to periodic recognition for safe
operations, the Company has implemented safe driving bonus programs. These plans
generally reward drivers on an escalating rate per mile based upon the
claim-free miles driven. Specialized Outsourcing Services payments in 1998 were
$400,000. Manufactured Housing provides certain toter drivers with a credit for
miles traveled while meeting standards for safety and professional performance.
The owner operator is entitled to use the amount credited to obtain
reimbursement from the Company for equipment purchases, maintenance, or upgrade
expenses. This program paid out $106,000 in 1998. The Company, during 1998,
instituted a field safety organization which places a dedicated safety officer
at each regional center. These individuals work towards improving safety by
analyzing claims, identifying opportunities to reduce claims costs, implementing
preventative programs to reduce the number of incidents, and promoting the
exchange of information to educate others. The Company has a Senior Vice
President of Risk Management and Safety, a Director of Safety and D.O.T.
Compliance, seven field safety managers, four safety orientation trainers
(part-time) and a Manager of Driver Training.
Interstate, a wholly-owned insurance subsidiary of the Company, makes available
physical damage insurance coverage for the Company's independent
owner-operators. Interstate also writes performance surety bonds for Morgan. The
Company may also utilize its wholly-owned insurance subsidiary to secure
business insurance for Morgan through re-insurance contracts.
Competition
All of the Company's activities are highly competitive. In addition to fleets
operated by manufacturers, the Company competes with large national carriers,
many of whom have substantially greater resources than the Company and numerous
small regional or local carriers. The Company's principal competitors in the
Manufactured Housing and Specialized Outsourcing Services marketplaces are
privately owned. No assurance can be given that the Company will be able to
maintain its competitive position in the future.
Competition among carriers is based on the rate charged for services, quality of
service, financial strength, and insurance coverage. The availability of tractor
equipment and the possession of appropriate registration approvals permitting
shipments between points required by the customer may also be influential.
Regulation
The Company's interstate operations (Morgan and TDI) are now subject to
regulation by the Federal Highway Administration ("FHWA") which is an agency of
the United States Department of Transportation ("D.O.T."). This jurisdiction was
transferred to the D.O.T. with the enactment of the Interstate Commerce
Commission Termination Act. Effective January 1, 1995, the economic regulation
of certain intrastate operations by various state agencies was preempted by
federal law. The states continue to have jurisdiction primarily to insure that
carriers providing intrastate transportation services maintain required
insurance coverage, comply with applicable safety regulations, and conform to
regulations governing size and weight of shipments on state highways. Most
states have adopted the D.O.T. safety regulations and actively enforce them in
conjunction with D.O.T. personnel.
<PAGE>
Motor carriers normally are required to obtain approval and/or authority from
the FHWA as well as various state agencies. Morgan is approved and/or holds
authority to provide interstate and intrastate transportation services from, to,
and between all points in the continental United States.
The Company provides services to certain specific customers under contract and
non-contract services to the shipping public pursuant to governing rates and
charges maintained at its corporate and various dispatching offices.
Transportation services provided pursuant to a written contract are designed to
meet a customer's specific shipping needs or by dedicating equipment exclusively
to a given customer for the movement of a series of shipments during a specified
period of time.
Federal regulations govern not only operating authority and registration, but
also such matters as the content of agreements with independent owner-operators,
required procedures for processing of cargo loss and damage claims, and
financial reporting. The Company believes that it is in substantial compliance
with all material regulations applicable to its operations.
The D.O.T. regulates safety matters with respect to the interstate operations of
the Company. Among other things, the D.O.T. regulates commercial driver
qualifications and licensing; sets minimum levels of financial responsibility;
requires carriers to enforce limitations on drivers' hours of service;
prescribes parts, accessories and maintenance procedures for safe operation of
commercial/motor vehicles; establishes health and safety standards for
commercial motor vehicle operators; and utilizes audits, roadside inspections
and other enforcement procedures to monitor compliance with all such
regulations. The D.O.T. has established regulations which mandate random,
periodic, pre-employment, post-accident and reasonable cause drug testing for
commercial drivers and similar regulations for alcohol testing. The Company
believes that it is in substantial compliance with all material D.O.T.
requirements applicable to its operations.
In Canada, provincial agencies grant both intraprovincial and extraprovincial
authority; the latter permits transborder operations to and from the United
States. The Company has obtained from Canadian provincial agencies all required
extraprovincial authority to provide transborder transportation of manufactured
homes and motor homes throughout most of Canada.
Most manufactured homes, when being transported by a toter, exceed the maximum
dimensions allowed on state highways without a special permit. The Company
obtains these permits for its independent owner-operators from each state which
allows the Company to transport their manufactured homes on state highways. The
states and Canadian provinces have special requirements for over-dimensional
loads detailing permitted routes, timing required, signage, escorts, warning
lights and similar matters.
Most states and provinces also require operators to pay fuel taxes, comply with
a variety of other tax and/or registration requirements, and keep evidence of
such compliance in their vehicles while in transit. The Company coordinates
compliance with these requirements by its drivers and independent
owner-operators, and monitors their compliance with all applicable safety
regulations.
Interstate, the Company's insurance subsidiary, is a captive insurance company
incorporated under Vermont law. It is required to report annually to the Vermont
Department of Banking, Insurance, Securities, & Health Care Administration, and
must submit to an examination by this Department on a triennial basis. Vermont
regulations require Interstate to be audited annually and to have its loss
reserves certified by an approved actuary. The Company believes Interstate is in
substantial compliance with Vermont insurance regulations.
Finance, the Company's finance subsidiary, is incorporated under Indiana law.
Finance is subject to Indiana's Equal Credit Opportunity Laws and other state
and federal laws relating generally to fair financing practices.
Item 2. PROPERTIES
The Company owns approximately 24 acres of land with improvements in Elkhart,
Indiana. The improvements include a 23,000 square foot office building housing
the Company's principal office and Manufactured Housing; a 7,000 square foot
building housing Specialized Outsourcing Services; a 9,000 square foot building
used for the Company's safety and driver service departments; and an 8,000
<PAGE>
square foot building partially used for driver training and licensing. Most of
the Company's 105 locations are situated on leased property. The Company also
owns and leases property for parking and storage of equipment at various
locations throughout the United States, usually in proximity to manufacturers of
products moved by the Company. The property leases have term commitments of a
minimum of thirty days and a maximum of three years, at monthly rentals ranging
from $25 to $6,500. The following table summarizes the Company's owned real
property.
Property Property Approximate
Location Description Acreage
-------- ----------- -----------
Elkhart, Indiana Corporate and
Specialized Outsourcing Services 24
Wakarusa, Indiana Terminal and storage 4
Middlebury, Indiana Terminal and storage 13
Mocksville, North Carolina Terminal and storage 8
Edgerton, Ohio Terminal and storage 2
Woodburn, Oregon Storage 4
Woodburn, Oregon Region and storage 1
Fort Worth, Texas Region and storage 6
Montevideo, Minnesota Terminal and storage 3
Item 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are party to litigation in the ordinary course
of business, generally involving liability claims in connection with traffic
accidents incidental to its transport business. From time to time the Company
may become party to litigation arising outside the ordinary course of business.
The Company does not expect such pending suits to have a material adverse effect
on the Company or its results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the American Stock Exchange under the
symbol MG. As of February 24, 1999, the approximate number of shareholders of
record of the Company's Class A common stock was 141. This figure does not
include shareholders with shares held under beneficial ownership in nominee name
or within clearinghouse position of brokerage firms and banks. The Class B
common stock is held of record by Lynch Corporation.
Market Price of Class A common stock:
1998 1997
Quarter Ended High Low High Low
March 31 $10.25 $8.75 $ 8.38 $7.00
June 30 11.63 9.50 10.25 8.25
September 30 10.19 6.50 10.25 8.38
December 31 7.75 6.88 10.38 8.88
Dividends Declared:
Class A Class B
Cash Dividends Cash Dividends
Quarter Ended 1998 1997 1998 1997
March 31 $.02 $.02 $.01 $.01
June 30 .02 .02 .01 .01
September 30 .02 .02 .01 .01
December 31 .02 .02 .01 .01
The Company commenced a tender offer on February 22, 1999, at which time it
announced its intention to purchase its shares of Class A Common Stock at a
price range not greater than $10.00 nor less than $8.50 per share. The Company
concluded on March 19, 1999, the tender offer, whereby it acquired 102,528
shares at $9.00 a share.
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
THE MORGAN GROUP, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in thousands, except share amounts) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Operating Revenues $150,454 $146,154 $132,208 $122,303 $101,880
Operating Income (Loss) (1) 2,007 1,015 (3,263) 3,371 3,435
Pre-tax Income (Loss) (1) 1,462 296 (3,615) 3,284 3,367
Net Income (Loss) (1) 903 196 (2,070) 2,269 2,212
Net Income (Loss) Per Share:
Basic $0.35 $0.07 ($0.77) $0.80 $0.75
Diluted 0.35 0.07 (0.77) 0.73 0.74
Cash Dividends Declared:
Class A 0.08 0.08 0.08 0.08 0.08
Class B 0.04 0.04 0.04 0.04 0.04
Financial Position
Total Assets $33,387 $33,135 $33,066 $30,795 $28,978
Working Capital 3,806 1,613 1,635 8,293 11,045
Long-term Debt 1,480 2,513 4,206 3,275 1,925
Shareholders' Equity 13,221 12,724 13,104 15,578 16,084
Common Shares Outstanding at Year
End 2,552,335 2,637,910 2,685,520 2,649,554 2,566,665
Basic Weighted Average Shares
Outstanding 2,606,237 2,656,690 2,684,242 2,582,548 2,566,665
</TABLE>
(1) Includes pre-tax special charges of $624,000 ($412,000 after tax) and
$3,500,000 ($2,100,000 after tax) in 1997 and 1996, respectively.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year 1998 Compared with 1997
Consolidated Results
Net income for 1998 was $0.9 million compared with $0.2 million for 1997. This
improvement represents the Company's continued progress to improve earnings. The
results for 1997 included a special charge of $0.4 million after-tax.
In 1998 total operating revenues increased to $150.5 million from $146.2 for
1997. 1997 operating revenues included $3.3 million from a discontinued line of
business. Excluding the discontinued line of business, total operating revenues
from continued operations increased 5% in 1998.
Operating income before interest, taxes, depreciation and amortization (EBITDA)
increased from $2.1 million in 1997 to $3.2 million in 1998. EBITDA for 1997 is
after a special charge of $0.6 million.
Because of the existence of significant non-cash expenses, such as depreciation
of fixed assets and amortization of intangible assets, the Company believes that
EBITDA contributes to a better understanding of the Company's ability to satisfy
its obligations and to utilize cash for other purposes. EBITDA should not be
considered in isolation from or as a substitute for operating income, cash flow
from operating activities, and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles.
Net interest expense decreased from $0.7 million in 1997 to $0.5 million in 1998
as a result of improved cash flows that allowed the Company to reduce the amount
of debt outstanding under its credit facilities.
For information concerning the provision for income taxes as well as information
regarding differences between effective tax rates and statutory rates, see Note
5 of the Notes to Consolidated Financial Statements.
Segment Results
The Company conducts its operations in three principal segments as discussed
below. The following discussion sets forth certain information about the segment
results for the years ended December 31, 1998, 1997, and 1996.
Manufactured Housing
Manufactured housing operating revenues are generated from providing
transportation and logistical services to manufacturers of manufactured homes.
Manufactured housing operating revenue increased $0.8 million to $106.1 million.
This increase was primarily with contract and other large manufactured housing
customers that the Company services. Partially offsetting this growth was the
loss of accounts in the second half of the year primarily in the South.
Manufactured housing EBITDA increased $2.1 million, or 24%, primarily due to a
reduction in overhead costs resulting from force reductions and field office
consolidations or eliminations.
Specialized Outsourcing Services
Specialized outsourcing services operating revenues increased 18% to $42.8
million in 1998 after excluding the 1997 discontinued line of business operating
revenues. Specialized Outsourcing Services consists of driver outsourcing, large
trailer and other specialized transport services. The large trailer delivery
service operating revenues grew 32% in 1998 to $20.8 million. This growth was
primarily due to the reconstruction of this business, improved owner-operator
utilization and an approximate 50% increase in independent owner-operators.
Additionally, the delivery of Class Eight vehicles or "decking" operating
revenues grew four times to $2.3 million in 1998. Partially offsetting this
growth was a decrease in operating revenues from the delivery of travel
trailers. Specialized outsourcing services EBITDA decreased $0.1 million
primarily due to increased recruiting, dispatch, and other administrative costs.
<PAGE>
Insurance/Finance
The Company's Insurance/Finance segment provides insurance and financing
services to the Company's drivers and independent owner-operators. This segment
also acts as a cost center whereby all bodily injury, property damage and cargo
loss costs are captured.
The Company in 1998 continued to be penalized by increasing claim costs. Claim
costs in 1998, as a percent of operating revenue, increased to 5.1% from 4.9% in
1997. This continuing negative trend offsets the benefits of lower insurance
expense and the transfer of more losses to the insurers in 1998.
The increase in claims costs was primarily responsible for the increased loss of
the Insurance/Finance segment.
Year 1997 Compared with 1996
Consolidated Results
Operating results for the year ended December 31, 1997, compared with 1996, were
significantly impacted by the acquisition of Transit Homes of America
("Transit") in December 1996 and the discontinued line of business, "Truckaway",
in May 1997. Transit is a provider of Manufactured Housing and Specialized
Outsourcing Services.
Operating revenues increased 11% from $132.2 million in 1996 to $146.2 million
in 1997. Transit contributed $21.2 million to 1997 operating revenues. Revenues
from continued operations, including Transit and excluding the Truckaway
operating revenues of $3.3 million, increased 13% in 1997 over 1996.
EBITDA increased to $2.1 million in 1997 from a loss of $1.8 million in 1996.
The EBITDA loss in 1996 included a special charge of $3.5 million taken in
connection with the closing of unprofitable operations. 1996 EBITDA before the
special charge was $1.7 million. 1997 EBITDA included two special items, for a
net charge to income of $0.6 million. The first item related to a change in
accounting that amounted to $1.0 million, the second item was a special credit
of $0.4 million. The change in accounting was to account for certain components
of driver pay on an accrual rather than a cash basis. The special credit related
primarily to the gain on the sale of Truckaway assets in excess of reserves
established in the prior year. 1997 EBITDA before the net special charge was
$2.7 million.
The decrease in depreciation and amortization expenses in 1997 related to the
discontinuance of the Truckaway operation was partially offset by increased
amortization from the Transit acquisition.
Net interest expense increased from $0.4 million to $0.7 million primarily due
to increases in debt related to the Transit acquisition and increased borrowing
on the credit facility.
For information concerning the provision for income taxes as well as information
regarding differences between effective tax rates and statutory rates, see Note
5 of the Notes to Consolidated Financial Statements.
Segment Results
Manufactured Housing
Manufactured housing operating revenues increased 28.5% to $105.4 million in
1997 primarily due to the Transit acquisition. EBITDA increased 17.1% to $8.7
million primarily because of the higher volume.
Specialized Outsourcing Services
The discontinuance of the Truckaway operation in May of 1997 and a decrease in
driver outsourcing operating revenues resulted in the decline of $9.5 million in
Specialized Outsourcing Services operating revenues in 1997. Partially
<PAGE>
offsetting was an increase in trailer operating revenues. This increase was
attributed to a renewed focus on the large trailer delivery business and the
Transit acquisition, which brought new travel trailer operating revenues.
Decreases in relocation of rental trucks, principally due to management's
decision to de-emphasize participation in this cyclical industry segment and
competitive pressures, was a significant factor, contributing to the decline in
Specialized Outsourcing Services driver outsourcing operating revenues.
Additionally, recreational vehicles operating revenues decreased through a
combination of reduced production from a major customer and other competitive
issues. Operating revenues from the delivery of new commercial vehicles declined
slightly in 1997 primarily due to the realignment of our customer base in order
to better position this product line for greater profitability.
Specialized Outsourcing Services EBITDA improved to $1.2 million in 1997 from a
loss of $.8 million in 1996.
EBITDA in 1997 was aided by the Transit acquisition and the discontinuance of
the Truckaway operation, which had an operating loss of $1.8 million in 1996.
EBITDA was negatively impacted by reduced profits from the driver outsourcing
business. Additionally, operating costs and expenses increased due to safety
training for all Morgan employees and drivers, and higher employee-related
health benefit costs.
Insurance/Finance
In 1997, the loss for Insurance/Finance increased because of the increase in
Manufactured Housing and Specialized Outsourcing Services operating revenues.
Liquidity and Capital Resources
Operating activities generated $5.5 million of cash in 1998 compared with a use
of cash of $0.4 million in 1997. Net income plus depreciation and amortization,
a decrease in trade accounts receivable and an increase in claims liabilities
were partially offset by a decrease in deferred income taxes and an increase in
other accounts receivables. Trade accounts receivable decreased $1.2 million due
to accelerated collections. Days sales outstanding decreased from 31 days at
December 31, 1997, to 28 days at December 31, 1998. As previously discussed,
bodily injury, property damage and cargo claims experience continued to penalize
operations in 1998. The increase in other accounts receivable is primarily
refund amounts due from the primary insurance provider. The increase in accrued
claims payable of $2.8 million represents the self-insured portion of these
claims. The Company accrues its self-insurance liability using a case reserve
method based upon claims incurred and estimates of unasserted and unsettled
claims. These liabilities have not been discounted. The Company in April 1998,
renegotiated its insurance for these events reducing the deductibles to $150,000
and including a stop-loss provision for cargo losses.
Capital expenditures and business acquisitions were $0.8 million in 1998.
Similarly, the 1999 capital expenditure plan approximates $0.8 million, which
will be primarily funded through internally generated funds.
Net cash used in financing activities increased to $3.7 million in 1998. Cash
was used for payments on term and promissory notes, pay off of revolving credit
notes, dividends, and the purchase of company stock.
The Company had no outstanding balance under its revolving credit facility at
December 31, 1998, and borrowing available for revolving credit of $8.7 million.
On January 28, 1999, the Company entered into a new $20.0 million revolving
credit facility ("New Credit Facility") with the Transportation Division of
BankBoston. This New Credit Facility is for two years, subject to renewal, and
better sized to the Company's requirements.
It is the current policy of the Company to pay annual Class A common stock
dividends totaling $.08 per share and Class B common stock dividends totaling
$.04 per share. Payment of any future dividends will be dependent upon, among
other things, earnings, financing agreement covenants, future growth plans,
legal restrictions, and the financial condition of the Company.
<PAGE>
The Company commenced a tender offer on February 22, 1999, at which time it
announced its intention to purchase shares of its Class A Common Stock at a
price range not greater than $10.00 nor less than $8.50 per share. The Company
concluded on March 19, 1999, the tender offer, whereby it acquired 102,528
shares at $9.00 a share. The Company, given its businesses, assets, and
prospects, believes that purchasing its Class A stock is an attractive
investment that will benefit the Company and its remaining shareholders and is
consistent with its long-term goals of maximizing shareholder return and with
its recent purchases of outstanding shares.
The Company had minimal exposure to interest rates as of December 31, 1998, as
substantially all of its outstanding long-term debt bears fixed rates. As
previously discussed, the New Credit Facility will bear variable interest rates
based on either a Federal Funds rate or the Eurodollar rate. Accordingly, future
borrowings under the New Credit Facility will have exposure to changes in
interest rates. Under its current policies, the Company does not use interest
rate derivative instruments to manage exposure to interest rate changes. Also,
the Company, currently, is not using any fuel hedging instruments.
It is the management's opinion that the Company's foreseeable cash requirement
will be met through a combination of internally generated funds and the credit
available from the New Credit Facility.
Long-Lived Assets
The Company periodically assesses the net realizable value of its long-lived
assets and evaluates such assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The Company continues to assess the recoverability of the goodwill associated
with two recent acquisitions. The total amount under review is $6.0 million. The
Company does not believe there is an impairment of long-lived assets, including
goodwill.
Impact of Seasonality
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This usually reduces operating
revenues in the first and fourth quarters of the year. The Company's operating
revenues, therefore, tend to be stronger in the second and third quarters.
Year 2000 Compliance
The Company recognizes the need to ensure its operations will not be adversely
affected by Year 2000 software failures and has established a project team to
address the Year 2000 issue. The Company has a program in place designed to
bring the systems into Year 2000 compliance in time to minimize any significant
detrimental effects on operations. Our goal is to have our remediated and
replaced systems operational by July 1999 to allow time for testing and
verification. In addition, executive management regularly monitors the status of
the Company's Year 2000 remediation plans.
The Company has completed the assessment of Year 2000 issues. The first phase of
the compliance plan has been completed with installation and conversion to a
mainframe computer. This computer provides adequate computing power to complete
application software conversion and application remediation. The second phase of
the compliance plan was conversion to Year 2000 compliant financial software in
February, 1999.
The third phase of the Year 2000 compliance program involves the remediation
and/or replacement of operating systems. Rather than remediate, a significant
portion of the operating software is being replaced by compliant purchased
software. Implementation is scheduled to be completed by July 1999. The Company
is using both internal and external resources to complete this phase. Systems
ranked highest in priority are scheduled first for replacement, with final
testing and certification for Year 2000 readiness scheduled for September 1999.
The Company has performed an evaluation of its non-information systems, such as
communication voice-mail systems and telephone switches. The cost of these
modifications or upgrades is expected to be less than $31,000. This compliance
plan should be completed by July 1999.
The Company also faces risk to the extent that services and systems purchased by
the Company and others with whom the Company transacts business do not comply
with Year 2000 requirements. As part of the Year 2000 compliance program,
<PAGE>
significant service providers, vendors, customers and governmental entities that
are believed to be critical to business operations after January 1, 2000, have
been identified and steps are being undertaken in an attempt to reasonably
determine their stage of Year 2000 readiness.
External and internal costs specifically associated with modifying internal use
software for Year 2000 compliance are expensed as incurred. The total amount
expended on the project through December 31, 1998, was $115,000. Costs to be
incurred in 1999 to fix Year 2000 problems are estimated at approximately
$308,000. These estimated costs do not include normal ongoing costs for computer
hardware and software that would be replaced even without the presence of the
Year 2000 issue. The Company does not expect the costs relating to Year 2000
remediation to have a material effect on its results of operations or financial
condition.
Based on the progress the Company has made in addressing its Year 2000 issues
and the Company's plan and timeline to complete its compliance program, the
Company does not foresee significant risks associated with its Year 2000
compliance at this time. As the Company's plan is to address its significant
Year 2000 issues prior to being affected by them, it has not developed a
comprehensive contingency plan.
However, if the Company identifies significant risks related to its Year 2000
compliance or its progress deviates from the anticipated timeline, the Company
will develop contingency plans as deemed necessary at that time.
The Company believes today that the most likely worst case scenario will involve
temporary disruptions in payments from customers and temporary disruptions in
the delivery of services and products to the Company. The Company would expect
that if these events were to occur, increased expense would result and adversely
affect the Company's cash flow.
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. However, there can be no
assurance that the Company will timely identify and remediate all significant
Year 2000 problems, that remedial efforts will not involve significant time and
expense, or that such problems will not have a material adverse effect on the
Company's business, results of operations or financial position.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by Item 7A of Form 10-K appears in Item 7 of this
report under the heading "Liquidity and Capital Resources" and is incorporated
herein by this reference.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Morgan Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31
1998 1997
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,490 $ 380
Trade accounts receivable, less allowance for doubtful
accounts of $208 in 1998 and $183 in 1997 12,188 13,362
Accounts receivable, other 1,214 126
Prepaid expenses and other current assets 2,467 2,617
Deferred income taxes 1,230 1,137
-------- --------
Total current assets 18,589 17,622
-------- --------
Property and equipment, net 4,117 4,221
Intangible assets, net 8,030 8,451
Deferred income taxes 1,997 1,377
Other assets 654 1,464
-------- --------
Total assets $ 33,387 $ 33,135
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit agreement $ -- $ 2,250
Trade accounts payable 4,304 4,092
Accrued liabilities 3,566 4,178
Income taxes payable 878 389
Accrued claims payable 3,553 2,281
Refundable deposits 1,830 1,666
Current portion of long-term debt 652 1,153
-------- --------
Total current liabilities 14,783 16,009
-------- --------
Long-term debt, less current portion 828 1,360
Long-term accrued claims payable 4,555 3,042
Commitments and contingencies -- --
Shareholders' equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,605,553 23 23
Class B: Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,459 12,453
Retained earnings 2,898 2,160
-------- --------
Total capital and retained earnings 15,398 14,654
Less - treasury stock at cost (253,218 in 1998 and
167,643 in 1997 Class A shares) (2,177) (1,426)
Loan to officer for stock purchase -- (504)
-------- --------
Total shareholders' equity 13,221 12,724
-------- --------
Total liabilities and shareholders' equity $ 33,387 $ 33,135
======== ========
</TABLE>
See accompanying notes.
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
For the year ended December 31
1998 1997 1996
<S> <C> <C> <C>
Operating revenues $ 150,454 $ 146,154 $ 132,208
Costs and expenses:
Operating costs 136,963 133,732 122,238
Selling, general and administration 10,254 9,708 8,235
Depreciation and amortization 1,230 1,075 1,498
Special charges -- 624 3,500
----------- ----------- -----------
148,447 145,139 135,471
----------- ----------- -----------
Operating income (loss) 2,007 1,015 (3,263)
Interest expense, net 545 719 352
----------- ----------- -----------
Income (loss) before income taxes 1,462 296 (3,615)
Income tax expense (benefit) 559 100 (1,545)
----------- ----------- -----------
Net income (loss) $ 903 $ 196 $ (2,070)
=========== =========== ===========
Net income (loss) per basic and diluted share $ 0.35 $ 0.07 $ (0.77)
=========== =========== ===========
Basic weighted average shares outstanding 2,606,237 2,656,690 2,684,242
</TABLE>
See accompanying notes.
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common Paid-in Officer Treasury Retained
Stock Stock Capital Loan Stock Earnings Total
----- ----- ------- ---- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 23 $18 $12,441 $ -- $(1,274) $4,370 $ 15,578
Net (loss) -- -- -- -- -- (2,070) (2,070)
Sale of treasury stock, net -- -- -- (504) 274 --
(230)
Common stock dividends:
Class A ($.08 per share) -- -- -- -- -- (126) (126)
Class B ($.04 per share) -- -- -- -- -- (48) (48)
------- ------- -------- ------- ------- ------- --------
Balance at December 31, 1996 23 18 12,441 (504) (1,000) 2,126 13,104
Net income -- -- -- -- -- 196 196
Purchase of treasury stock -- -- -- -- (426) -- (426)
Common stock dividends:
Class A ($.08 per share) -- -- -- -- -- (114) (114)
Class B ($.04 per share) -- -- -- -- -- (48) (48)
Issuance of a director's stock options -- -- 12 -- -- -- 12
------- ------- -------- ------- -------- ------ --------
Balance at December 31, 1997 23 18 12,453 (504) (1,426) 2,160 12,724
Net income -- -- -- -- -- 903 903
Purchase of treasury stock -- -- -- 504 (813) -- (309)
Common stock dividends:
Class A ($.08 per share) -- -- -- -- -- (117) (117)
Class B ($.04 per share) -- -- -- -- -- (48) (48)
Options exercised -- -- 6 -- 62 -- 68
------- ------- -------- ------- -------- ------- --------
Balance at December 31, 1998 $ 23 $18 $12,459 $ -- $ (2,177) $2,898 $13,221
====== ====== ======= ======= ======== ======= =======
</TABLE>
See accompanying notes.
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31
1998 1997 1996
Operating activities:
<S> <C> <C> <C>
Net income (loss) $ 903 $ 196 $(2,070)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,246 1,108 1,533
Deferred income taxes (713) (179) (1,813)
Special charges -- 624 3,500
Non-cash compensation expense for stock options -- 12 --
(Gain) loss on disposal of property and equipment 20 (37) 37
Changes in operating assets and liabilities:
Trade accounts receivable 1,174 (2,050) (27)
Other accounts receivable (1,088) 148 240
Refundable taxes -- 321 (490)
Prepaid expenses and other current assets 139 795 (431)
Other assets 810 (1,053) (374)
Trade accounts payable 207 1,770 (1,683)
Accrued liabilities (612) (2,486) 894
Income taxes payable 489 -- --
Accrued claims payable 2,785 663 437
Refundable deposits 164 (242) 363
------- ------- -------
Net cash provided by (used in) operating activities 5,524 (410) 116
Investing activities:
Purchases of property and equipment (585) (825) (780)
Proceeds from sale of property and equipment 88 159 94
Proceeds from disposal of assets held -- 1,656 --
Business acquisitions (228) (227) (895)
------- ------- -------
Net cash (used in) provided by investing activities (725) 763 (1,581)
Financing activities:
Net (payment) proceeds from revolving credit agreement (2,250) 1,000 1,250
Principle payments on long-term debt (1,168) (2,366) (924)
Proceeds from long-term debt 135 673 --
Purchase of treasury stock,
net of officer loan of $504 in 1998 (309) (426) (286)
Proceeds from exercise of stock options 68 -- 56
Common stock dividends paid (165) (162) (174)
------- ------- -------
Net cash used in financing activities (3,689) (1,281) (78)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 1,110 (928) (1,543)
Cash and cash equivalents at beginning of period 380 1,308 2,851
------- ------- -------
Cash and cash equivalents at end of period $ 1,490 $ 380 $ 1,308
======= ======= =======
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Morgan Group, Inc. ("Company"), through its wholly owned subsidiaries,
Morgan Drive Away, Inc. ("Morgan") and TDI, Inc. ("TDI"), provides outsourced
transportation and logistical services to the manufactured housing and
recreational vehicle industries and is a leading provider of delivery services
to the commercial truck and trailer industries in the United States. Lynch
Corporation ("Lynch") owns all of the 1,200,000 shares of the Company's Class B
common stock and 155,900 shares of the Company's Class A common stock, which in
the aggregate represents 68% of the combined voting power of the combined
classes of the Company's common stock.
The Company's other significant wholly owned subsidiaries are Interstate
Indemnity Company ("Interstate") and Morgan Finance, Inc. ("Finance"), which
provide insurance and financial services to its owner operators.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, Morgan, TDI, Interstate, and Finance. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of operating revenues and expenses during the reporting
period. Actual results could materially differ from those estimates.
Operating Revenues and Expense Recognition
Operating revenues and related driver pay are recognized when movement of the
product is completed. Other operating expenses are recognized when incurred.
Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the property and
equipment.
Intangible Assets
Goodwill is stated at the excess of purchase price over net asset acquired.
Other intangible assets are stated at cost. Intangible assets, including
goodwill, are being amortized by the straight-line method over their estimated
useful lives.
Impairment of Assets
The Company periodically assesses the net realizable value of its long-lived
assets and evaluates such assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
For assets to be held and used, impairment is determined to exist if estimated
undiscounted future cash flows are less than the carrying amount. For assets to
be disposed of, impairment is determined to exist if the estimated net
realizable value is less than the carrying amount.
<PAGE>
Insurance and Claim Reserves
The Company maintains personal injury and property damage insurance of up to
$25,000,000 per occurrence; with a deductible of $150,000 beginning April 1,
1998, and $250,000 for prior periods. The Company maintains cargo damage
insurance of $1,000,000 per occurrence with a deductible of $150,000 beginning
April 1, 1998, and $250,000 for prior periods. The Company's cargo damage
insurance policy includes a stop-loss provision, under which the Company has
recorded a receivable of $767,000 at December 31, 1998. The Company carries
statutory insurance limits on workers' compensation with a deductible of
$50,000. Claims and insurance accruals reflect the estimated ultimate cost of
claims for cargo loss and damage, personal injury and property damage not
covered by insurance. The Company accrues its self-insurance liability using a
case reserve method based upon claims incurred and estimates of unasserted and
unsettled claims. These liabilities have not been discounted.
Stock-Based Compensation
The Company accounts for stock-based compensation under Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees". Because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. Pro forma information regarding net income and earnings per share as
if the Company had accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method, which is required by Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation," is immaterial.
Net Income (Loss) Per Common Share
Net income (loss) per common share ("EPS") is computed using the weighted
average number of common shares outstanding during the period. Since each share
of Class B common stock is freely convertible into one share of Class A common
stock, the total of the weighted average number of common shares for both
classes of common stock is considered in the computation of EPS. The effect of
dilutive stock options is immaterial to the calculation of diluted EPS for all
the years presented.
Fair Values of Financial Instruments
The carrying value of financial instruments such as cash and cash equivalents,
trade and other receivables, trade payables and long-term debt approximate their
fair values. Fair value is determined based on expected future cash flows,
discounted at market interest rates, and other appropriate valuation
methodologies.
Comprehensive Income
There were no items of comprehensive income for the years presented, as defined
under SFAS No. 130, "Reporting Comprehensive Income". Accordingly, comprehensive
income is equal to net income (loss).
Reclassifications
Certain amounts in prior years have been reclassified to conform with the
current year presentation.
<PAGE>
2. PROPERTY AND EQUIPMENT
The components of property and equipment and their estimated useful lives are as
follows (in thousands):
Estimated December 31
Useful Life 1998 1997
----------- ---- ----
(Years)
Land -- $873 $925
Buildings 25 2,052 1,763
Transportation equipment 3 to 5 478 526
Office and service equipment 3 to 8 3,535 3,293
----- -----
6,938 6,507
Less accumulated depreciation 2,821 2,286
----- -----
Property and equipment, net $4,117 $4,221
====== ======
3. INTANGIBLE ASSETS
The components of intangible assets and their estimated useful lives are as
follows (in thousands):
Estimated December 31
Useful Life 1998 1997
----------- ---- ----
(Years)
Trained work force 12 $880 $880
Covenants not to compete 3 to 15 1,217 1,183
Trade name and goodwill - original 40 1,660 1,660
Trade name and goodwill - purchased 3 to 20 7,116 6,917
----- -----
10,873 10,640
Less accumulated amortization 2,843 2,189
----- -----
Intangible assets, net $8,030 $8,451
====== ======
4. INDEBTEDNESS
At December 31, 1998, the Company had no outstanding debt under its revolving
credit facility. The Company had $6,587,000 of letters of credit outstanding on
December 31, 1998. On January 28, 1999, a new $20,000,000 revolving credit
facility ("Credit Facility") was executed replacing these facilities. The term
of the Credit Facility is for two years, subject to renewal annually,
thereafter. If not renewed, the Credit Facility shall convert to a three-year
term loan. The interest rate will be calculated, at the Company's option, on
either the lender's base rate, or Eurodollar rate, all of which are adjusted on
a quarterly basis and include a margin based upon performance ratios. A
commitment fee of .375% is required on the unused portion. Total borrowings are
limited to qualified trade accounts receivable, qualified owner-operator loans,
cash investments, and outstanding letters of credit. The Credit Facility also
provides for excess short-term borrowings of up to $5,000,000 based on a
leverage test. The Company is required to maintain certain minimum levels of net
worth and other financial ratios. This facility provides financing for working
capital and general corporate needs. Letters of credit are required for self
insurance retention reserves and other corporate needs.
<PAGE>
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31
1998 1997
<S> <C> <C>
Term note with principal and interest payable monthly at 8.25% through
July 31, 2000 $123 $ 232
Promissory note with imputed interest at 7.81%, principal and interest
payments due annually through August 11, 2000 657 914
Promissory note with imputed interest at 6.31%, principal and interest
payments due quarterly through December 31, 2001 411 747
Promissory note with imputed interest at 8.5%, principal and interest
payments due quarterly through September 30, 2002 120 --
Promissory note with imputed interest at 7.0%, principal and interest
payments due annually through October 31, 2002 169 205
Term note with imputed interest at 6.509%, principal and interest payments
due monthly through April 1, 1998 -- 303
Promissory note with imputed interest at 8.0%, principal and interest
payments due annually through September 1, 1998 -- 112
----- ------
1,480 2,513
Less current portion 652 1,153
----- ------
Long-term debt, net $ 828 $1,360
===== ======
</TABLE>
Maturities on long-term debt are $652,000 in 1999, $585,000 in 2000, $176,000 in
2001, and $67,000 in 2002.
Cash payments for interest were $566,000 in 1998, $717,000 in 1997, and $482,000
in 1996.
<PAGE>
5. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The income tax provisions (benefits) are summarized as follows (in thousands):
For the Year Ended December 31
1998 1997 1996
Current:
State $ 201 $ -- $ 28
Federal 1,071 279 240
------- ------- -------
1,272 279 268
Deferred:
State (203) 45 (267)
Federal (510) (224) (1,546)
------- ------- -------
(713) (179) (1,813)
------- ------- -------
$ 559 $ 100 $(1,545)
======= ======= =======
Deferred tax assets (liabilities) are comprised of the following (in thousands):
December 31
1998 1997
Deferred tax assets:
Accrued insurance claims $ 3,029 $ 2,080
Special charges and accrued expenses 379 538
Depreciation 146 115
Other 62 67
------- -------
3,616 2,800
Deferred tax liabilities:
Prepaid expenses (389) (266)
Other -- (20)
------- -------
(389) (286)
------- -------
$ 3,227 $ 2,514
======= =======
<PAGE>
A reconciliation of the income tax provisions and the amounts computed by
applying the statutory federal income tax rate to income before income taxes
follows (in thousands):
For the Year Ended December 31
1998 1997 1996
------- ------- -------
Income tax provision
(benefit) at federal
statutory rate $ 497 $ 101 $(1,229)
State income tax, net of
federal tax benefit 48 3 (155)
Reduction attributable to
special election by captive -- (155) (216)
insurance company
Changes in estimated
state
tax rates on beginning (70) -- --
temporary differences
Permanent differences 84 94 50
Other -- 57 5
------- ------- -------
$ 559 $ 100 $(1,545)
======= ======= =======
Cash payments for income taxes were $810,000, $54,000 and $934,000 in 1998, 1997
and 1996 respectively.
6. SHAREHOLDERS' EQUITY
The Company has two classes of common stock outstanding, Class A and Class B.
Under the bylaws of the Company: (i) each share of Class A is entitled to one
vote and each share of Class B is entitled to two votes; (ii) Class A
shareholders are entitled to a dividend ranging from one to two times the
dividend declared on Class B stock; (iii) any stock distributions will maintain
the same relative percentages outstanding of Class A and Class B; (iv) any
liquidation of the Company will be ratably made to Class A and Class B
shareholders after satisfaction of the Company's other obligations; and (v)
Class B stock is convertible into Class A stock at the discretion of the holder;
Class A stock is not convertible into Class B stock.
In February of 1996, the Company adopted a Special Employee Stock Purchase Plan
("Plan") under which an officer purchased 70,000 shares of Class A common stock
from treasury stock at the then current market value price of $560,000. Under
the terms of the Plan, $56,000 was delivered to the Company and a promissory
note was executed in the amount of $504,000. This officer terminated his
employment on July 17, 1998. The Company purchased his 70,000 shares of Class A
common stock at the market price of $637,000.
The Company's Board of Directors has approved the purchase of up to 250,000
shares of Class A common stock for its Treasury at various dates and market
prices. As of December 31, 1998, 183,218 shares had been repurchased at prices
between $6.875 and $11.375 per share for a total of $1,540,000 under this plan.
7. SUBSEQUENT EVENT
The Company commenced a tender offer on February 22, 1999, at which time it
announced its intention to purchase shares at a price range not greater than
$10.00 nor less than $8.50 per share. The Company concluded on March 19, 1999,
the tender offer, whereby it acquired 102,528 shares at $9.00 a share.
<PAGE>
8. STOCK OPTION PLAN
The Company has a stock option plan which provides for the granting of incentive
or non-qualified stock options to purchase up to 200,000 shares of Class A
common stock to directors, officers, and other key employees. No options may be
granted under this plan for less than the fair market value of the common stock
at the date of the grant, except for certain non-employee directors. Although
the exercise period is determined when options are actually granted, an option
shall not be exercised later than ten years and one day after it is granted.
Stock options granted will terminate if the grantee's employment terminates
prior to exercise for reasons other than retirement, death, or disability. Stock
options vest over a four year period pursuant to the terms of the plan, except
for stock options granted to a non-employee director, which are immediately
vested. Employees and non-employee directors have been granted non-qualified
stock options to purchase 113,375 and 57,000 shares, respectively, of Class A
common stock, net of cancellations and shares exercised.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 167 $ 8.32 176 $8.40 139 $8.55
Granted 23 8.11 25 8.13 49 7.99
Exercised (7) 8.25 (26) 8.73 -- --
Canceled (13) 8.59 (8) 8.07 (12) 8.57
--- ---- ----
Outstanding at end of year 170 $8.28 167 $8.32 176 $8.40
=== === ===
Exercisable at end of year 124 $8.42 109 $8.35 92 $8.64
=== === ====
</TABLE>
Exercise prices for options outstanding as of December 31, 1998, ranged from
$6.20 to $10.19. The weighted-average remaining contractual life of those
options is 6.6 years. The weighted-average fair value of options granted during
each year was immaterial.
9. BENEFIT PLAN
The Company has a 401(k) Savings Plan covering substantially all employees,
which matches 25% of the employee contributions up to a designated amount. The
Company's contributions to the Plan for 1998, 1997 and 1996 were $29,000,
$38,000 and $27,000, respectively.
10. TRANSACTIONS WITH LYNCH
The Company pays Lynch an annual service fee of $100,000 for executive,
financial and accounting, planning, budgeting, tax, legal, and insurance
services. Additionally, Lynch charged the Company for officers' and directors'
liability insurance for 1998, 1997 and 1996 in the amount of $16,000, $16,000
and $15,000, respectively.
The Company's Class A and Class B common stock owned by Lynch is pledged to
secure a Lynch Corporation line of credit.
11. ACQUISITIONS
Effective December 30, 1996, the Company purchased the assets of Transit Homes
of America, Inc., a provider of outsourcing services to the manufactured housing
and specialized transport industries. The aggregate purchase price was
$4,417,000, which includes the cost of the acquisition and certain limited
liabilities assumed as part of the acquisition. The acquisition was financed
<PAGE>
through available cash resources and issuance of a promissory note. In addition,
the Company entered into an employment agreement with the seller which provides
for incentive payments up to $200,000 in 1999, and $100,000 in each of the years
2000 and 2001. The incentive payments are based upon achieving certain profit
levels in Manufactured housing and will be treated as compensation expense if
earned. The excess purchase price over assets acquired was approximately
$4,091,000 and is being amortized over twenty years. In connection with the
acquisition, liabilities assumed were as follows (in thousands):
Fair value of assets acquired $ 326
Goodwill acquired 4,091
Cash paid (940)
Notes issued (1,855)
-------
Liabilities assumed $ 1,622
=======
12. SPECIAL CHARGES
In the fourth quarter of 1996, the Company recorded special charges of
$2,675,000 ($1,605,000 after tax) associated with exiting the truckaway
operation. The special charges, comprised principally of the anticipated loss on
sales of revenue equipment, projected losses through April 30, 1997, and
write-downs of accounts receivable and other assets. Additionally, the Company
recognized an adjustment to the carrying value of four properties of $825,000
($495,000 after tax).
A pretax special charge for 1997 of $624,000 ($412,000 after tax) is comprised
of gains in excess of the estimated net realizable value associated with exiting
the truckaway operation discussed above of $361,000, offset by charges related
to driver pay. During 1997, management concluded that certain components of
driver pay were being accounted for on a cash basis. Accordingly, the Company
recorded total charges of $1.2 million ($985,000 in special charges and $215,000
as operating costs) in the fourth quarter of 1997 to account for all components
of driver pay on an accrual basis. It is the opinion of management that the
effects of this change in accounting are immaterial to the results of operations
of the previous years presented.
13. SEGMENT REPORTING
The Company has adopted FASB Statement No. 131 "Disclosure about Segments of a
Business Enterprise and Related Information".
Description of Services by Segment
The Company operates in three business segments: manufactured housing,
specialized outsourcing services, and insurance and finance. The manufactured
housing segment provides outsourced transportation and logistical services to
manufacturers of manufactured housing through a network of terminals located in
thirty one states. The specialized outsourcing services segment provides
outsourced transportation services primarily to manufacturers of recreational
vehicles, commercial trucks and trailers through a network of service centers in
eight states. The third segment, insurance and finance, provides insurance and
financing to the Company's drivers and independent owner-operators. This segment
also acts as a cost center whereby all property damage and bodily injury and
cargo costs are captured. The Company's segments are strategic business units
that offer different services and are managed separately based on the
differences in these services.
Measurement of Segment (Loss) and Segment Assets
The Company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as earnings before interest, taxes, depreciation and
amortization (EBITDA). The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (See Note 1).
There are no significant intersegment revenues.
<PAGE>
The following table presents the financial information for the Company's
reportable segments for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
Operating revenues
<S> <C> <C> <C>
Manufactured Housing $ 106,145 $ 105,383 $ 82,005
Specialized Outsourcing Services 42,774 39,236 48,707
Insurance and Finance 4,072 4,085 3,802
All Other 48 9 --
--------- --------- ---------
153,039 148,713 134,514
Total intersegment insurance revenues (2,585) (2,559) (2,306)
--------- --------- ---------
Total operating revenues $ 150,454 $ 146,154 $ 132,208
========= ========= =========
Segment profit (loss) - EBITDA
Manufactured Housing $ 10,836 $ 8,715 $ 7,444
Specialized Outsourcing Services 1,126 1,245 (812)
Insurance and Finance (8,358) (7,825) (7,564)
All Other (367) (45) (833)
--------- --------- ---------
3,237 2,090 (1,765)
Depreciation and amortization (1,230) (1,075) (1,498)
Interest expense (545) (719) (352)
--------- --------- ---------
Income before taxes $ 1,462 $ 296 $ (3,615)
========= ========= =========
Identifiable assets
Manufactured Housing $ 18,764 $ 17,741 $ 14,986
Specialized Outsourcing Services 9,070 7,655 6,810
Insurance and Finance 1,864 1,949 1,637
All Other 3,689 5,790 9,633
--------- --------- ---------
Total $ 33,387 $ 33,135 $ 33,066
========= ========= =========
Special charges included in segment profit (loss)
Manufactured Housing $ -- $ 571 $ --
Specialized Outsourcing Services -- 53 2,675
Insurance and Finance -- -- --
All Other -- -- 825
--------- --------- ---------
Total $ -- $ 624 $ 3,500
========= ========= =========
</TABLE>
A majority of the Company's accounts receivable are due from companies in the
manufactured housing, recreational vehicle, and commercial truck and trailer
industries located throughout the United States. Services provided to Oakwood
Homes Corporation accounted for approximately $31.8 million, $21.6 million and
$12.9 million of revenues in 1998, 1997 and 1996, respectively. The Company's
gross accounts receivables from Oakwood were 20% and 10% of total receivables at
December 31, 1998 and 1997, respectively. In addition, Fleetwood Enterprises,
Inc., accounted for approximately $26.0 million, $28.1 million and $26.6 million
of revenues in 1998, 1997 and 1996, respectively, and 15% of gross accounts
receivables at December 31, 1998 and 1997.
<PAGE>
14. OPERATING COSTS AND EXPENSES (in thousands)
1998 1997 1996
-------- -------- --------
Purchased transportation costs $103,820 $100,453 $ 92,037
Operating supplies and expenses 14,092 15,267 13,300
Claims 7,698 7,204 6,598
Insurance 3,375 3,524 3,843
Operating taxes and licenses 7,978 7,284 6,460
-------- -------- --------
$136,963 $133,732 $122,238
======== ======== ========
15. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings and claims that have arisen
in the normal course of business for which the Company maintains liability
insurance covering amounts in excess of its self-insured retention. Management
believes that adequate reserves have been established on its self-insured claims
and that their ultimate resolution will not have a material adverse effect on
the consolidated financial position, liquidity, or operating results of the
Company.
The Company leases certain land, buildings, computer equipment, computer
software, and motor equipment under non-cancelable operating leases that expire
in various years through 2001. Several land and building leases contain monthly
renewal options. Total rental expenses were $2,352,000, $2,531,000 and
$2,087,000 in 1998, 1997 and 1996, respectively.
Future payments at December 31, 1998 under non-cancelable leases with initial
terms of one year or more are $999,000 in 1999, $787,000 in 2000, and $377,000
in 2001.
16. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of unaudited quarterly results of
operations for the years ended December 31, 1998 and 1997 (in
thousands, except share data):
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
1998
<S> <C> <C> <C> <C>
Operating revenues $ 33,971 $ 41,523 $ 39,135 $ 35,825
Operating income (loss) (347) 1,239 699 416
Net income (loss) (231) 617 321 196
Net income (loss) per basic and diluted share $ (0.09) $ 0.23 $ 0.12 $ 0.08
1997
Operating revenues $ 33,633 $ 39,211 $ 38,290 $ 35,020
Operating income (loss) 431 1,286 1,251 (1,953)
Net income (loss) 266 699 705 (1,474)
Net income (loss) per basic and diluted share $ 0.10 $ 0.26 $ 0.27 $ (0.56)
</TABLE>
In the fourth quarter of 1997, the Company recorded special charges of $624,000
($412,000 after tax, or $0.16 per share).
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
The Morgan Group, Inc.
We have audited the accompanying consolidated balance sheets of The Morgan
Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule of The Morgan Group, Inc.
and subsidiaries listed in Item 14(a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Morgan Group,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Greensboro, North Carolina
February 12, 1999, except Note 7,
as to which the date is March 19, 1999
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
section entitled "Proposal One - Election of Directors" of the Company's Proxy
Statement for its 1999 Annual Meeting of Stockholders expected to be filed with
the Commission on or about April 28, 1999 (the "1999 Proxy Statement").
Item 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive compensation is
incorporated by reference to the section entitled "Management Remuneration" of
the 1999 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference to the
sections entitled "Voting Securities and Principal Holders Thereof" and entitled
"Proposal One - Election of Directors" of the 1999 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
section entitled "Certain Transactions with Related Persons" of the 1999 Proxy
Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements are included in Item
8:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2) Financial Statement Schedules Schedule II - Valuation and Qualifying
Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the instructions or are inapplicable and therefore,
have been omitted.
(a)(3) Exhibits Filed.
The exhibits filed herewith or incorporated by reference herein are
set forth on the Exhibit Index. Included in those exhibits are
management contracts and compensatory plans and arrangements which are
identified as Exhibits 10.1 through 10.10.
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the quarter ending
December 31, 1998.
(c) The exhibits filed herewith or incorporated by reference herein are
set forth on the Exhibit Index.
<PAGE>
Schedule II
The Morgan Group Inc. and Subsidiaries
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Allowance for Doubtful Accounts
Additions Amounts
Beginning Charged to Costs Written Off Ending
Description Balance and Expenses Net of Recoveries Balance
----------- ------- ------------ ----------------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 $183,000 $301,000 $276,000 $208,000
Year ended December 31, 1997 $ 59,000 $336,000 $212,000 $183,000
Year ended December 31, 1996 $102,000 $244,000 $287,000 $ 59,000
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.
THE MORGAN GROUP, INC.
Date: March 30, 1999 By: /s/ Charles C. Baum
--------------------
Charles C. Baum
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on this 29th day of March,
1999.
1) Chief Executive Officer:
By: /s/ Charles C. Baum
-----------------------------
Charles C. Baum
2) Chief Financial Officer and
Chief Accounting Officer
By: /s/ Dennis R. Duerksen
-----------------------------
Dennis R. Duerksen
3) A Majority of the Board of Directors:
/s/ Charles C. Baum Director
-----------------------------
Charles C. Baum
/s/ Bradley J. Bell Director
-----------------------------
Bradley J. Bell
/s/ Richard B. Black Director
-----------------------------
Richard B. Black
/s/ Frank E. Grzelecki Director
-----------------------------
Frank E. Grzelecki
/s/ Robert S. Prather, Jr. Director
-----------------------------
Robert S. Prather, Jr.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
3.1 Registrant's Restated Certificate of Incorporation, as
amended, is incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
3.2 Registrant's Code of By-Laws, as restated and amended,
is incorporated by reference to Exhibit 3.2 of the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
4.1 Form of Class A Stock Certificate is incorporated by
reference to Exhibit 3.3 of the Registrant's
Registration Statement on Form S-1, File No. 33-641-22,
effective July 22, 1993.
4.2 Fourth Article - "Common Stock" of the Registrant's
Certificate of Incorporation, is incorporated by
reference to the Registrant's Certificate of
Incorporation, as amended, filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
4.3 Article II - "Meeting of Stockholders," Article VI -
"Certificate for Shares" and Article VII - "General
Provisions" of the Registrant's Code of By-Laws,
incorporated by reference to the Registrant's Code of
By-Laws, as amended, filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
4.4 Loan Agreements, dated September 13, 1994, between the
Registrant and Subsidiaries and Society National Bank,
are incorporated by reference to Exhibit 4.4 to the
Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1994, filed November 15,
1994.
4.5 Amended and Restated Credit and Security Agreement,
effective March 25, 1998, among the Registrant, Morgan
Drive Away, Inc., TDI, Inc., Interstate Indemnity
Company and KeyBank National Association is
incorporated by reference to Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997, filed March 31, 1998.
4.6 Revolving Credit Facility Agreement, effective March
27, 1997, among Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company and KeyBank National
Association is incorporated by reference to Exhibit
4.5(a) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, filed March 31,
1997.
4.7 Master Revolving Note, dated March 27, 1997, among
Morgan Drive Away, Inc., TDI, Inc., and Interstate
Indemnity Company to KeyBank National Association is
incorporated by reference to Exhibit 4.5(b) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, filed March 31, 1997.
4.8 Amended and Restated Revolving Credit Note, dated March
31, 1998, among Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company to KeyBank National
Association is incorporated by reference to Exhibit A
to the Amended and Restated Credit and Security
Agreement, effective March 25, 1998, among the
Registrant, Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company and KeyBank National
Association, is incorporated by reference to Exhibit
4.8 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997, filed March 31, 1998.
<PAGE>
4.9 Security Agreement, effective as of March 27, 1997,
between Morgan Drive Away, Inc. and KeyBank National
Association is incorporated by reference to Exhibit
4.5(c) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, filed March 31,
1997.
4.10 Absolute, Unconditional and Continuing Guaranty,
effective as of March 27, 1997, by the Registrant to
Key Bank National Association is incorporated by
reference to Exhibit 4.5(d) to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1996, filed March 31, 1997.
4.11 Amended and Restated Continuing Guaranty, effective as
of March 31, 1998, by the Registrant to KeyBank
National Association is incorporated by reference to
Exhibit D to the Amended and Restated Credit and
Security Agreement, effective March 25, 1998, among the
Registrant, Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company and KeyBank National
Association, is incorporated by reference to Exhibit
4.11 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997, filed March 31, 1998.
4.12 Revolving Credit and Term Loan Agreement, dated January
28, 1999, among the Registrant and Subsidiaries and
Bank Boston, N.A., is incorporated by reference to
Exhibit 4(1) to the Registrant's Current Report on Form
8-K filed February 12, 1999.
4.13 Guaranty, dated January 28, 1999, among the Registrant
and Subsidiaries and BankBoston, N.A. is incorporated
by reference to Exhibit 4(2) to the Registrant's
Current Report on Form 8-K filed February 12, 1999.
4.14 Security Agreement, dated January 28, 1999, among the
Registrant and Subsidiaries and BankBoston, N.A. is
incorporated by reference to Exhibit 4(3) to the
Registrant's Current Report on Form 8-K filed February
12, 1999.
4.15 Stock Pledge Agreement, dated January 28, 1999, among
the Registrant and Subsidiaries and BankBoston, N.A. is
incorporated by reference to Exhibit 4(4) to the
Registrant's Current Report on Form 8-K filed February
12, 1999.
4.16 Revolving Credit Note, dated January 28, 1999, among
the Registrant and Subsidiaries and BankBoston, N.A. is
incorporated by reference to Exhibit 4(5) to the
Registrant's Current Report on Form 8-K filed February
12, 1999.
10.1 The Morgan Group, Inc. Incentive Stock Plan is
incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
10.2 First Amendment to the Morgan Group, Inc. Incentive
Stock Plan is incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, filed November 14,
1997.
<PAGE>
10.3 Memorandum to Charles Baum and Philip Ringo from Lynch
Corporation, dated December 8, 1992, respecting Bonus
Pool, is incorporated by reference to Exhibit 10.2 to
the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
10.4 Term Life Policy from Northwestern Mutual Life
Insurance Company insuring Paul D. Borghesani, dated
August 1, 1991, is incorporated by reference to Exhibit
10.4 to the Registrant's Registration Statement on Form
S-1, File No. 33-641-22, effective July 22, 1993.
10.5 Long Term Disability Insurance Policy from Northwestern
Mutual Life Insurance Company, dated March 1, 1990, is
incorporated by reference to the Registrant's
Registration Statement on Form S-1, File No. 33-641-22,
effective July 22, 1993.
10.6 Long Term Disability Insurance Policy from CNA
Insurance Companies, effective January 1, 1998 is
incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997, filed March 31, 1998.
10.7 The Morgan Group, Inc. Employee Stock Purchase Plan, as
amended, is incorporated by reference to Exhibit 10.16
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994, filed on March 30, 1995.
10.8 Consulting Agreement between Morgan Drive Away, Inc.
and Paul D. Borghesani, effective as of April 1, 1996,
is incorporated by reference to Exhibit 10.19 the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, filed on April 1, 1996.
10.9 Employment Agreement between Morgan Drive Away, Inc.
and Terence L. Russell is incorporated by reference to
Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995, filed on
April 1, 1996.
10.10 Stock Purchase Agreement between Morgan Drive Away,
Inc. and Terence L. Russell is incorporated by
reference to Exhibit 10.21 to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1995, filed on April 1, 1996.
10.11 Asset Purchase Agreement, dated May 21, 1993, between
Registrant, Transamerican Carriers, Inc., Ruby and
Billy Davis and Morgan Drive Away, Inc., is
incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
10.12 Management Agreement between Skandia International and
Risk Management (Vermont), Inc. and Interstate
Indemnity Company, dated December 15, 1992, is
incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
10.13 Agreement for the Allocation of Income Tax Liability
between Lynch Corporation and its Consolidated
Subsidiaries, including the Registrant (formerly Lynch
Services Corporation), dated December 13, 1988, as
amended, is incorporated by reference to Exhibit 10.13
the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
<PAGE>
10.14 MCI Corporate Service Agreement, dated December 12,
1994, between MCI Telecommunications Corporation and
Morgan Drive Away, Inc., is incorporated by reference
to Exhibit 10.17 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994, filed
on March 30, 1995.
10.15 First Amendment to MCI Corporate Service Plan and other
service agreements dated May 7, 1996 and September 30,
1997 is incorporated by reference to Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997, filed March 31, 1998.
10.16 Certain Services Agreement, dated January 1, 1995,
between Lynch Corporation and the Registrant is
incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, filed on March 30, 1995.
10.17 Asset Purchase Agreement for Transfer Drivers Inc. and
List of Schedules is incorporated by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995, filed on
April 1, 1996.
10.18 Asset Purchase Agreement between Registrant and Transit
Homes of America, Inc., dated as of November 19, 1996,
as amended as of December 30, 1996, is incorporated by
reference to Exhibit (2)-1 to the Registrant's Form 8-K
filed January 14, 1997.
10.19 Amendment to Asset Purchase Agreement between
Registrant and Transit, Inc., dated as of December 29,
1996 is incorporated by reference to Exhibit (2)-2 to
the Registrant's Form 8-K filed January 14, 1997.
21 Subsidiaries of the Registrant _____
23 Consent of Ernst & Young LLP _____
27.1 Financial Data Schedule (year ended December 31, 1998) _____
27.2 Restated Financial Data Schedule (year ended December
31, 1997) _____
27.3 Restated Financial Data Schedule (year ended December
31, 1996) _____
The Morgan Group, Inc.
(Delaware)
100% 100%
Morgan Drive Away, Inc. Interstate Indemnity Company
(Indiana) (Vermont)
100% 100%
TDI, Inc. Morgan Finance, Inc.
(Indiana) (Indiana)
Subsidiaries of Morgan Drive Away, Inc.
100% 100%
MDA Corp. Transport Services Unlimited, Inc.
(Oregon) (Indiana)
Consent Of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-72996) pertaining to The Morgan Group, Inc. Incentive Stock Plan and
in the Registration Statement (Form S-8 No. 33-72998) pertaining to The Morgan
Group, Inc. 401(k) Profit Sharing Plan of our report dated February 12, 1999,
except Note 7, as to which the date is March 19, 1999, with respect to the
consolidated financial statements of The Morgan Group, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Greensboro, North Carolina
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains unaudited summary financial information extracted
from the Regisrant's consolidated financial statements for the 12 months ended
December 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000906609
<NAME> The Morgan Group, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,490
<SECURITIES> 0
<RECEIVABLES> 12,396
<ALLOWANCES> 208
<INVENTORY> 0
<CURRENT-ASSETS> 18,589
<PP&E> 6,938
<DEPRECIATION> 2,821
<TOTAL-ASSETS> 33,387
<CURRENT-LIABILITIES> 14,783
<BONDS> 0
<COMMON> 41
0
0
<OTHER-SE> 13,180
<TOTAL-LIABILITY-AND-EQUITY> 33,387
<SALES> 150,454
<TOTAL-REVENUES> 150,454
<CGS> 0
<TOTAL-COSTS> 148,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 485
<INTEREST-EXPENSE> 545
<INCOME-PRETAX> 1,462
<INCOME-TAX> 559
<INCOME-CONTINUING> 903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 903
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains unaudited summary financial information extracted
from the Regisrant's consolidated financial statements for the 12 months ended
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000906609
<NAME> The Morgan Group, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 380
<SECURITIES> 0
<RECEIVABLES> 13,545
<ALLOWANCES> 183
<INVENTORY> 0
<CURRENT-ASSETS> 17,622
<PP&E> 6,507
<DEPRECIATION> 2,286
<TOTAL-ASSETS> 33,135
<CURRENT-LIABILITIES> 16,009
<BONDS> 0
<COMMON> 41
0
0
<OTHER-SE> 12,683
<TOTAL-LIABILITY-AND-EQUITY> 33,135
<SALES> 146,154
<TOTAL-REVENUES> 146,154
<CGS> 0
<TOTAL-COSTS> 145,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 336
<INTEREST-EXPENSE> 719
<INCOME-PRETAX> 296
<INCOME-TAX> 100
<INCOME-CONTINUING> 196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains unaudited summary financial information extracted
from the Regisrant's consolidated financial statements for the 12 months ended
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000906609
<NAME> The Morgan Group, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 354
<SECURITIES> 954
<RECEIVABLES> 11,312
<ALLOWANCES> 59
<INVENTORY> 0
<CURRENT-ASSETS> 16,923
<PP&E> 5,626
<DEPRECIATION> 2,863
<TOTAL-ASSETS> 33,066
<CURRENT-LIABILITIES> 14,828
<BONDS> 0
<COMMON> 41
0
0
<OTHER-SE> 13,104
<TOTAL-LIABILITY-AND-EQUITY> 33,066
<SALES> 132,208
<TOTAL-REVENUES> 132,208
<CGS> 0
<TOTAL-COSTS> 135,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 244
<INTEREST-EXPENSE> 352
<INCOME-PRETAX> (3,615)
<INCOME-TAX> (1,545)
<INCOME-CONTINUING> (2,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,070)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
</TABLE>
